2017 (3) TMI 1481 - AT - Income Tax

TDS liability - ascertained liability or not - primary liability of payment of income tax - Held that - In the present case, no evidence has been brought on record hat interest credited as per this software was only a notional provision and the same was reversed afterwards. But this is also an undisputed fact that the bank is using CBS software as in that case. Hence, we feel it proper that the matter should be restored back to the file of the AO for a fresh decision in the light of this Tribunal order rendered in the case of Bank of Maharashtra (2010 (3) TMI 885 - ITAT AHMEDABAD ) and if the assessee is able to establish that it was only a notional provision which was reversed afterwards then no TDS liability can be imposed on the assessee. We order accordingly. I order under section 201(1) & 201(1A) validity - Held that - In the present case, the orders u/s 201(1) & 201(1A) of the IT Act were passed by the AO on 29-09-2014 and the earliest assessment year involved is 2008-09 and therefore, it is seen that six years from the end of the relevant assessment year has not elapsed at the time of passing the impugned orders

Issues Involved:
1. Primary liability of payment of income tax under section 191.
2. Demand under sections 201(1) and 201(1A) without considering CBDT Circular No. 03/2010.
3. Applicability of section 194A on notional entries.
4. Assessee in default for failure to deduct tax at source.
5. Constructive credit and macro monitoring in CBS software.
6. Principles of natural justice and adequate opportunity to furnish certificates.
7. Impact of declarations under section 197A.
8. Article 19(1)(g) of the Constitution and demand notice under section 156.
9. Time limit for initiating and completing proceedings under section 201(1).

Detailed Analysis:

1. Primary Liability of Payment of Income Tax under Section 191:
The appellant argued that the primary liability for payment of income tax lies with the person to whom the income belongs, as per the explanation to section 191. The Tribunal did not specifically address this argument but focused on the procedural aspects related to TDS and the use of CBS software by banks.

2. Demand under Sections 201(1) and 201(1A) without Considering CBDT Circular No. 03/2010:
The appellant contended that the demand under sections 201(1) and 201(1A) was confirmed without due emphasis on CBDT Circular No. 03/2010, which clarifies the Explanation to section 194A. The Tribunal acknowledged the relevance of the circular and referred to it in its analysis, particularly in relation to the use of CBS software by banks.

3. Applicability of Section 194A on Notional Entries:
The appellant argued that interest credited as per notional entries for macro monitoring purposes does not attract TDS under section 194A, as supported by the Tribunal's decision in the case of Bank of Maharashtra v. ITO. The Tribunal agreed that if the interest credited is only a notional provision and is reversed subsequently, no TDS liability arises. The matter was remanded to the AO to verify if the entries were indeed reversed.

4. Assessee in Default for Failure to Deduct Tax at Source:
The appellant challenged the classification as an assessee in default solely for failing to deduct tax at source, arguing that the recipient must also fail to pay the tax directly. The Tribunal did not provide a specific ruling on this issue but focused on the procedural correctness of the AO's actions.

5. Constructive Credit and Macro Monitoring in CBS Software:
The appellant highlighted that no constructive credit to the depositor's account occurs during the daily or monthly calculation of interest in CBS software, and such entries are for macro monitoring only. The Tribunal acknowledged this argument and remanded the case to the AO to verify if the credited interest was only a notional provision reversed later.

6. Principles of Natural Justice and Adequate Opportunity to Furnish Certificates:
The appellant argued that the AO did not provide adequate opportunity to furnish certificates from accountants, violating principles of natural justice. The Tribunal did not specifically address this argument but remanded the case for further verification by the AO.

7. Impact of Declarations under Section 197A:
The appellant contended that declarations under section 197A by the payee obligate the payer to desist from deducting tax, and the payer should not be held responsible if the declarations are incomplete. The Tribunal did not specifically address this issue in its ruling.

8. Article 19(1)(g) of the Constitution and Demand Notice under Section 156:
The appellant argued that deeming an assessee in default without issuing a demand notice under section 156 violates Article 19(1)(g) of the Constitution. The Tribunal did not address this constitutional argument directly but focused on the procedural aspects of the AO's actions.

9. Time Limit for Initiating and Completing Proceedings under Section 201(1):
The appellant cited the Tribunal's decision in the case of ITO v. State Bank of India, which held that orders under sections 201(1) and 201(1A) should be passed within a reasonable time, typically six years. The Tribunal noted that the orders in the present case were within the six-year limit and thus were not barred by limitation.

Conclusion:
The Tribunal remanded the case to the AO for a fresh decision, particularly to verify if the interest credited was only a notional provision reversed subsequently. The appeals were allowed for statistical purposes, and the Tribunal emphasized the need for the AO to consider the relevant CBDT circular and previous Tribunal decisions in similar cases.

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